From what I can tell, the IP community (at least those in academia) pretty much uniformly thinks the decisions were terrible. I don’t have much of a beef with that point of view [full disclosure – I signed a law professors’ amicus brief in the Blizzard case that argued for protection of reverse engineering done with the purpose of creating interoperability and that the EULA should be preempted by copyright law].

I want to make a related point about the markets for copyrightable products.

Most of the arguments against the enforceability of EULAs, particuarly when they eviscerate protections under copyright law, are based on the assumption that purchasers don’t really assent to the EULA’s provisions, and if they do, they don’t have much choice but to agree to the terms. That’s not a new objection to standard form contracts – it’s been around for a long time. See Carnival Cruise Lines v. Shute. The argument now is routinely rejected in just about every context in which it arises. It’s the “triumph” of law & economics.

But this argument against form contracts really has two components. The first is that consumers don’t read/understand the terms and have no idea what they’re agreeing to. The second is that, even if consumers understand precisely what they’re agreeing to, they don’t have a choice but to accept those terms.

Mike Madison focuses on the former when he suggests that it might be okay if customers’ user rights were wiped out by contract if it was clear that the customers understood that before they bought the product and could change their behavior accordingly. That’s precisely why Arizona Cartridge bothers him – the case seems to say that Lexmark can’t offer “one use” products at lower prices even when they make clear to consumers that the product is for one use and consumers seem to want that.

While I think Mike’s right that Lexmark’s ability to contract for different numbers of uses of a product might enhance welfare, I think that may be a function of the particular market for Lexmark’s product. I’m not sure I agree that, as a general rule, it would be okay to contract away all the protection of copyright law as long as consumers clearly understood that. In other words, I think we need to focus more on the second aspect of the objection to form contracts.

In many cases (software comes to mind) there’s a good argument that consumers don’t have that much choice about what products to use. I don’t recall being given much choice about what software to use when I was at my firm. How many clients were willing to accept files in anything other than Word form? But I don’t think that’s even the most serious concern. The bigger problem is that sellers are likely to put terms in their EULA’s that are good for them but not good for innovation. It is not in Blizzard’s interest to allow anyone to reverse engineer their game so that they can create interoperable (and at least to some extent competitive) products.

But we have made a policy decision that reverse engineering is good in some circumstances for society generally. How will it ever happen if the sellers all prohibit it by contract? One possibility is that, if there really are people who want games that can be reverse engineered, someone will recognize that market opportunity and offer those types of games (a la the open source movement). I doubt that effect would be particularly significant as an empirical matter, at least for products directed at the general user population. [As an aside, that’s why I doubt the open source movement will ever really affect the software industry much – I understand it will make some headway at the server level and in niche markets with very savvy computer users, but my mom (and there are lots of people like my mom) will never use an open source program.

But even if it were true that companies could offer software with the “feel free to reverse engineer me” term, should that make us doubt the potential value of allowing reverse engineering of the products whose owners lock them up? Aren’t there strong reasons to allow interoperability with pieces of software where users experience path dependence?

Update: Mike Madison articulates well the reason why Lexmark’s attempts to offer “one use” and “multiple use” cartridges probably is benign. I’ll only highlight his caveat that the risk is low “so long as the cartridges are otherwise functionally indistinguishable.” That, to me, is the key point of the case. Lexmark makes cartridges for printers. I’m not aware of any reason why consumers would be particularly tied to Lexmark cartridges, but I’m aware of lots of reasons why consumers are tied to Microsoft Word.

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1) Do we believe users when they appear to manifest assent to contract terms? We’re struggling with this issue in a variety of contexts, including sweepstakes rules, credit card disclosures and adware EULAs. From my perspective, at some points we effectively ignore whether or not consumers “get it” because doing otherwise would be so disruptive to the producers. I’m not totally comfortable with this outcome, but I haven’t come up with a better solution yet either.

2) Is reverse engineering in software so important that we need to override the contract terms? Note, of course, that reverse engineering and interoperability/compatability development is important in a variety of contexts, online and offline. This can be restricted by contract or by other techniques (technology/business operations), with the result of “stifling” “innovation.”

So what’s unique/special/different about software? The argument is that there are social welfare improvements from the innovation based on reverse engineering software, but this would be true in all reverse engineering contexts.

I did feel uncomfortable about this statement: “It is not in Blizzard’s interest to allow anyone to reverse engineer their game so that they can create interoperable (and at least to some extent competitive) products.” In theory, this is true in the sense that Blizzard may want to control all aspects of reverse engineering through permissions/licensing. However, software licensors frequently make an API available to facilitate the development of compatible programs, so not all software vendors agree about this issue.

Mark McKenna

Thanks for your response Eric. You may be right that there is nothing unique about software that would suggest particular importance in reverse engineeringit (though I guess I’m not totally convinced of that yet). I wasn’t really arguing that software was special – just that software comes to mind as a market where there might be particularly strong path dependence and where the notion of interoperability has the most tangibility (which isn’t to say that interoperability doesn’t occur offline).

Your last point that “software licensors frequently make an API available to facilitate the development of compatible programs” is a fair one. I should have said that it seems likely to me that software developers will want to prevent interoperability in those situations where they imagine the interoperable software product would be competitive in some sense. That’s obviously not true all the time; in some cases greater interoperability would enhance the value of software and the developers might embrace it. But I suspect those are situations where the interoperable software is complimentary rather than competitive. And I suppose my point is that I want interoperability MOST when the other software is competitive.

I, for one, can’t stand it when anybody sends me stuff as an MS Word attachment… I prefer to use plain ASCII text unless something else is absolutely necessary, and consider proprietary file formats to be inappropriate as a file-exchange or permanent archiving format.

Incidentally, I managed to get my mom to start using the Firefox web browser, an open source program.